OVERVIEW – We continue to warn that shorter-term technical studies suggest a potential correction ahead which should favor NOK and SEK strength. Price action has been interesting on Tuesday as the Euro has already taken out its previous daily high against the USD, while the NOK and SEK lag. Traditionally, it has been the regional currencies which have led such moves and admittedly, we are therefore somewhat skeptical with the recent USD weakness. Nevertheless, the markets are stretched, with global equities and commodities also faltering and at some point, a healthy reversal is warranted. The timing would be ideal at current levels and we would recommend that aggressive traders should look to get involved by establishing short USD/NOK and short USD/SEK positions on Tuesday. There is no economic data scheduled in the region, so price action should trade off of the broader global macro themes.
Eur/Sek has just squeaked out a fresh 2010 low on Wednesday, ahead of the latest sharp bounce. We continue to retain a constructive outlook for the cross, with any setbacks seen limited below the 10.10 figure. Look for a break back above 10.30 to confirm bias, and accelerate gains. Ultimately, only a break back below 10.00 would negate outlook and give reason for concern.
Eur/Nok had come back under pressure over the past several days with the market trading down to a 12+ month year low below 8.20. However, despite the weakness on the cross, we were not convinced of these moves and continued to see value at current levels with the market more likely to bounce rather than to continue to drop. Look for the formation of a potential inverse head and shoulders with the right shoulder in the process of carving. A break above 8.18 should accelerate towards the neckline by 8.26.
Usd/Sek our view is highly constructive at current levels and favors continued USD appreciation over the coming weeks. We contend the market is attempting to carve out a major base rather than in the process of some bearish consolidation. Any setbacks are expected to be well supported ahead of 7.15, with the latest break back above 7.35 confirming bias and likely to accelerate gains towards 7.50-75 over the medium-term.
Usd/Nok has just managed to clear the multi-week range highs by 5.90 and we believe this now opens some fresh medium-term upside over the coming weeks. However, with the market only just exceeding the range highs we would not rule out the possibility for a pullback from here to allow for daily studies to unwind. . Buying a dip towards 5.75 is the preferred strategy.
Gbp/Nok in the process of rolling back over after stalling by the multi-day range highs just over 9.50. Look for the latest pullback into the 9.30 area to now be well supported ahead of an eventual sustained break above 9.50 which should open some medium-term gains towards the 10 handle over the coming weeks. Only a close back below 9.30 gives reason for concern and dips should be bought.
Nok/Jpy has been well confined to a very choppy range trade over the past several weeks, largely defined between 15.00 and 16.50. Rallies have once again been well capped in the 16.50 area ahead of the latest retreat back into the range lows. From here, we recommend continuing to play the range and buying at current level below 15.00.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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